Publics predict new-vehicle gross profits will remain higher than 2019 levels. - IMAGE: Karolina Grabowska, Pexels

Publics predict new-vehicle gross profits will remain higher than 2019 levels.

IMAGE: Karolina Grabowska, Pexels

Second quarter results show new-vehicle gross profits for five of the six major publicly traded franchised dealership groups declined, reported an article in Automotive News.

The six public entities—Penske Automotive Group Inc., Sonic Automotive Inc., Group 1 Automotive Inc., Lithia Motors, Asbury Automotive Group Inc., and AutoNation—cited rising interest rates and growing inventories as the reason for gross profit shortfalls, noted the article. 

Sonic was the only public company that didn't experience a year-over-year drop in second-quarter gross profit per used vehicle, Automotive News reported. Still, the group's combined average profit of about $2,000 was around $500 higher than the average in the second quarter of 2019.

Analysts expect a further decline in new-vehicle gross profits, while auto retailer CEOs believe the "new normal" gross on each new vehicle will be sustained, the article noted.

Despite a year-over-year decrease of 8.8% percent, Penske, known for selling luxury vehicles, still topped the charts this quarter with a gross profit of $6,259 per new vehicle sold. The figure reported by Penske considers international sales and excludes agency sales in the UK for Q2.

Penske's drop in new-vehicle gross profit per unit was $56 compared to the first quarter.

However, other publics reported larger drops. For instance, Sonic reported its new-vehicle gross profit dropped 27% year over year to $5,003 in the second quarter. Despite this, Sonic CEO David Smith remained optimistic.

"This decline in new-vehicle GPUs should continue as we progress through the second half of 2023 and into 2024," Smith told analysts in a call last week. "But we continue to believe that the new normal level of new-vehicle GPU will remain structurally higher than it was pre-pandemic."

During the second quarter, Asbury's gross profit on each new vehicle sold was $4,835, which is a 15% decrease from the previous year. Asbury CEO David Hult also remained positive, telling analysts in a call last week, "We're not going to go back to '19 levels" of gross profit. And we certainly don't see that any time in our near future.”

Originally posted on Auto Dealer Today

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